FINAL REPORT

Integrated Energy Systems(IES) for Buildings: A MarketAssessment

Prepared for:Energy Efficiency and Renewable Energy U.S. Department of EnergyWashington, DCandOak Ridge National LaboratoryOak Ridge, TN

Prepared by:Resource Dynamics Corporation

August 2002

8605 Westwood Center DriveVienna, Virginia 22183

(703) 356-1300www.rdcnet.com

http://www.rdcnet.com/

TABLE OF CONTENTS

Section Page

Executive Summary ...................................................................................................ES-1

Introduction................................................................................................................1-1

Status of IES ........................................................................................................1-2

DOE Objectives ...................................................................................................1-3

IES for Buildings, State of the Art.............................................................................2-1

Defining IES ........................................................................................................2-1

CHP Systems .......................................................................................................2-4

Absorption Chillers..............................................................................................2-10

Engine-Driven Chillers ........................................................................................2-12

Desiccant Dehumidification Systems ..................................................................2-12

Market Potential.........................................................................................................3-1

IES Compatibility With Buildings.......................................................................3-2

The Potential Building Market for IES................................................................3-2

Analysis of Building Types .................................................................................3-8

Regional Analysis ................................................................................................3-9

Sensitivity Analysis .............................................................................................3-12

Technical and Market Barriers...................................................................................4-1

Economics and Tax Treatment ............................................................................4-2

Product Performance and Availability.................................................................4-2

Awareness, Information and Education...............................................................4-3

Utility Policies and Regulation ............................................................................4-4

TABLE OF CONTENTS

Section Page

Planning, Siting and Zoning ................................................................................4-5

Environmental Regulation ...................................................................................4-5

Supporting Market Infrastructure ........................................................................4-6

Technology R&D Implications..................................................................................5-1

Improving CHP Technology................................................................................5-1

Improving IES Cooling Options ..........................................................................5-4

Improving the IES Package .................................................................................5-5

Appendix A: Methodology .......................................................................................A-1

Market Assessment ..............................................................................................A-1

Key Inputs and Assumptions for DISPERSE Methodology................................A-2

Initial Grouping of Sites ......................................................................................A-6

Determining the Most Economic DG Option ......................................................A-7

Sensitivity Analyses.............................................................................................A-12

References............................................................................................................A-16

FIGURES

Figure ES-1 IES Market Potential for New and Existing Single and Multi-Building Facilities........................................................................................ES-2

Figure ES-2 IES Potential by Building Type............................................................ES-3

Figure ES-3 Future Scenarios Offer Highest Market Potential ................................ES-4

Figure ES-4 Regional Effects of Price Sensitivities on IES .....................................ES-5

Figure 1-1 CHP Capacity in the Building Sector, by Building Type (EIA 1998, tota1 of 1,870 MW).............................................................................1-3

Figure 2-1 IES Options for Single Buildings............................................................2-2

Figure 2-2 IES Options for Multiple Buildings ........................................................2-3

Figure 2-3 Waukesha ATGL (1.2-2.5 MW) Series Natural Gas Engine..................2-4

Figure 2-4 Rolls-Royce Allison 501-K Turbine Power Package..............................2-5

Figure 2-5 Fuel Cell Energy’s 2MW Molten Carbonate Fuel Cell power Plant demonstration in Santa Clara, California......................................................2-6

Figure 3-1 Distribution of IES Market Potential by Cooling Operating Scheme.....3-4

Figure 3-2 Market Potential for Single Buildings and Multi-Building Facilities in 2010 and 2020 (GW) .........................................................................................3-5

Figure 3-3 Distribution of Market Potential Among Variations in IES....................3-7

Figure 3-4 Market Potential for IES by Size and Type of CHP Prime Mover .........3-8

Figure 3-5 IES Potential by Building Type ..............................................................3-9

Figure 3-6 IES “Spark Spreads”, by State ................................................................3-11

Figure 3-7 IES Market Potential by Region .............................................................3-12

Figure 3-8 Natural Gas Price Increase (Through March 2001) and Industry Forecasts ...........................................................................................3-13

Figure 3-9. Future Scenarios Offer Highest Market Potential ..................................3-14

Figure 3-10 Regional Effects of Price Sensitivities on IES (MW)...........................3-15

Figure 3-11. Regional Effects of Price Sensitivities on IES (MW)..........................3-16

Figure A-1 DISPERSE Model ..................................................................................A-1

Figure A-2 Baseload Sizing Scenarios .....................................................................A-8

Figure A-3 Natural Gas Price Increase (Through March 2001) and Industry Forecasts ...........................................................................................A-13

Figure A-4. Natural Gas Price Sensitivities Relative to Base Case (Industrial Gas Prices for Pacific Region only) .....................................................A-13

TABLES

Table ES-1. Scenarios Depicted by Sensitivity Analyses..........................................ES-4

Table 2-1 Cost and Performance of CHP Systems ...................................................2-8

Table 2-2 Cost and Performance of Single-Effect, Indirect-Fired Absorption Chillers...................................................................................................................2-11

Table 2-3 Cost and Performance of Engine Driven Chillers ....................................2-12

Table 2-4 Cost and Performance of Desiccant Dehumidification Systems..............2-14

Table 3-1 Buildings With CHP-Compatible Utility Service and Distribution Systems..............................................................................................3-2

Table 3-2 Building Market Potential for IES............................................................3-3

Table 3-3. Breakdown of Market Potential by Distribution System (MW in Year 2020)................................................................................................3-6

Table 3-4. Scenarios Depicted by Sensitivity Analyses ............................................3-12

Table 4-1 Market and Technical Barriers to IES for Buildings................................4-1

Table 4-2 Tax Treatment of CHP Property...............................................................4-2

Table 5-1. Future Cost and Efficiency Improvements in CHP Technology (Selected Size Ranges Only)..................................................................................5-1

Table A-1 Technology Price and Performance Inputs for CHP Units.......................A-3

Table A-2 Technology Price and Performance Inputs for Cooling Options .............A-4

Table A-3 Utilities Included In DISPERSE for Commercial Buildings....................A-6

Table A-4 Financial Parameter Assumptions ...........................................................A-5

Table A-5 Scenarios Analyzed only for Single Buildings.........................................A-11

Table A-6 Scenarios Analyzed for Both Single Buildings and Multiple Buildings (District Energy) ....................................................................................................A-11

Table A-7 Scenarios Depicted by Sensitivity Analyses ............................................A-12

Table A-8 Estimation of Fuel Adjustment Clauses ...................................................A-15

EXECUTIVE SUMMARY

Combined heat and power (CHP) has evolved in recent years, incorporating potentially high valueThermally Activated Technologies (TAT) like cooling and humidity control. The CHP TechnologyRoadmaps (Buildings and Industry) have focused research and development on a comprehensiveintegration approach: component integration, equipment integration, packaged and modular systemdevelopment, system integration with the grid, and system integration with building and process loads.This marked change in technology research and development has led to the creation of a new acronym tobetter reflect the nature of development in this important area of energy efficiency: Integrated EnergySystems (IES).

Integrated Energy Systems (IES) combine on-site power or distributed generation technologies withthermally activated technologies to provide cooling, heating, humidity control, energy storage and/or otherprocess functions using thermal energy normally wasted in the production of electricity/power. IESproduce electricity and byproduct thermal energy onsite, with the potential of converting 80 percent ormore of the fuel into useable energy. Integrated Energy Systems have the potential to offer the nation thebenefits of unprecedented energy efficiency gains, consumer choice and energy security.

This market assessment confirms that the current IES research and development projects targeting thecommercial building sector have the potential to:

1. dramatically reduce fossil fuel use and air pollutant emissions2. improve the electric grid’s power quality, efficiency, reliability and return on investment3. enhance energy security

This study supports and guides IES projects by assessing technologies and markets where IES ispositioned for growth. Furthermore, this effort will identify areas where technology needsimprovement and where substantial barriers exist, and the potential market effects of overcomingthese obstacles. As a result, this study sought to quantify the buildings market for IES, identify keymarket drivers and barriers, and explore potential areas for technology research and developmentthat could improve the prospects for IES.

The analysis revealed that the potential building sector market for IES is almost 17 GW in 2010,growing to over 35 GW by 2020, and includes IES systems with absorption chillers, engine-drivenchillers (EDCs), and CHP-only systems. This market potential is based on achievable economics,where IES provides a minimum payback of 10 years compared with conventional HVAC systemsand purchasing electricity from the grid. Many of the IES options analyzed provide paybacks muchlower than 10 years, with a significant portion under 4 years.

As shown in Figure ES-1, the market potential includes both system turnover in existing buildings,as well as IES in new buildings. Included in this potential are increased absorption chillers (8.9million tons), added thermal storage (3.2 million tons), and more engine driven chillers (2.4 milliontons). Together, if implemented this market potential would represent almost 18 million metric tonsof reduced carbon dioxide emissions (based on carbon equivalent) annually by the year 2020, andwould contribute significantly to meeting goals originally established by the Kyoto Protocol. Thisreduction in carbon emissions is based on displacing grid emissions from average U. S. utility plants.

Figure ES-1. IES Market Potential for New and Existing Single and Multi-Building Facilities

One important, but recognized, shortcoming of this market assessment is the exclusion of IntegratedEnergy Systems (IES) employing desiccant dehumidification technologies. Prior to the 1997ASHRAE Handbook of Fundamentals1, design professionals lacked data describing extrememoisture load conditions. Cooling and dehumidification systems (typically air conditioning systems)are usually designed based on extreme temperature conditions and fall far short of capacity whenmoisture really reaches its peak – usually at moderately warm temperatures. Thus, although it is feltthat excluding IES with desiccant dehumidification in this initial market assessment is a reasonablerepresentation of current conditions in the U.S., a follow-up assessment effort is planned. Thatsupplementary assessment will include consideration of new ASHRAE design moisture data andventilation standard requirements and will likely show penetration by IES/desiccant combinationsystems and, as a result, will increase the total market potential.

To date, most IES is concentrated in education and health care buildings. The education sector includesuniversities, which have long used CHP as a means of controlling utility costs. While some barriers stillexist in this sector, such as the price of backup power and the regulated market for surplus power, otherbarriers such as first cost have not been factors in IES market penetration. Similarly, hospitals have asmaller but still significant installed base of CHP.

For other building sectors, the economics of IES holds promise, but barriers prevent widespread adoption.As shown in Figure ES-2, the potential for IES is highest in office buildings, with over 10 GW of total

1 American Society of Heating, Refrigerating, and Air Conditioning Engineers, ASHRAE Handbook 1997Fundamentals, Atlanta GA, 1997.

New - Single Bldgs19%

New - Multi Bldgs19%

Turnover - Single Bldgs33%

Turnover - Multi Bldgs29%

New - Single Bldgs23%

New - Multi Bldgs24%

Turnover - Single Bldgs28%

Turnover - Multi Bldgs25%

Year 2010(16.8 GW)

Year 2020(35.5 GW)

ES-2

IES, including significant opportunities for CHP with absorption units and engine-driven chillers (45percent of the office potential). Of that 4.5 GW, CHP with absorbers represent over 3.6 GW and EDCs1.1, giving offices almost half of the total EDC potential.

Hospitals and colleges, while already established in CHP use, each offer over 7 GW of potential for IES,respectively. Schools, retail, and hotels are smaller segments, but with their significant heating andcooling loads offer additional IES potential. Military bases also offer potential for IES, but generally forCHP-only systems. Military bases do not generally have base-wide cooling distribution systems.

Figure ES-2. IES Potential by Building Type

The study also examined a number of scenarios to evaluate how sensitive the base case is to varyinginputs. In doing so, there was a focus on how improving the cost and/or the efficiency of IESimpacts the market size. In addition, three sensitivities were added to illustrate the effects ofchanging energy prices on the IES market for buildings (see Table ES-1).

Overall market potential results of the sensitivity analysis (see Figure ES-3) indicate thatimprovement in the installed cost and efficiency increases the market size dramatically. Both futurescenarios increase the potential market from 35 to almost 70 GW, nearly doubling the market size.

-

2,000

4,000

6,000

8,000

10,000

12,000

Office School Super. Hospital Apart. Hotel Retail Rest. College Military

Pote

ntia

l (M

W)

CHP Only CHP w/Absorber or EDC

ES-3

Table ES-1. Scenarios Depicted by Sensitivity Analyses

Scenario IES Unit Cost andPerformanceCooling Option Cost

and Performance Energy Prices

1. Base Case Current Current Current

2. Future Future Future Current

3. Future Package Future Future w/PackageCost Reduction Current

4. Moderate Current Current Moderate Prices with FuelAdjustment Clause

5. High Current Current High Prices with FuelAdjustment Clause

6. Peak Current Current Peak Prices with FuelAdjustment Clause

Figure ES-3. Future Scenarios Offer Highest Market Potential

The energy price sensitivities tell another story. On the surface, it appears that higher energy priceslead to less potential for IES. Figure ES-4 illustrates that this holds on a regional basis, with everyregion in the U. S. showing a decrease in market potential from the Base Case as energy prices rise.

0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000

Future Package

Future

Base

Moderate

High

Peak

Scen

ario

Market Potential (MW)

ES-4

Figure ES-4. Regional Effects of Price Sensitivities on IES

The major factor driving this impact is the combination of high electricity prices and use of thermalenergy, as the economics of IES in general improve with high prices if the thermal utilization is high. Thestudy supports this, with the IES heating only configurations offering improved market potential with highelectricity and natural gas prices in regions of the country where the share of gas-fired generation is high,such as the Pacific, Mountain, West South Central, and New England. In these regions, the prices ofelectricity and gas tend to move together, with electric prices increasing significantly as gas prices rise.

Other portions of the U.S., such as the East North Central, West North Central, East South Central, andSouth and Middle Atlantic have more coal and nuclear generation, and thus are less affected by rise in gasprices. Current IES performance tends to be penalized in these portions of the country when gas pricesrise. However, this trend may change since many new intermediate duty and peaking plants arenatural gas turbines which will change the future dynamics of this marketplace.

Despite improving economics, increasing emphasis on overall energy efficiency, and steps takentoward restructuring of the electric utility industry, a number of hurdles stand in the way of realizingthe benefits inherent in implementing IES on a wide scale. Applications in the U.S. buildingsmarket are currently limited by a combination of barriers in the following categories:

• Economics and Tax Treatment• Product Performance and Availability• Awareness, Information and Education• Utility Policies and Regulation• Planning, Zoning and Codes• Environmental Regulation• Supporting Market Infrastructure

Market Potential (MW)- 1,000 2,000 3,000 4,000 5,000 6,000 7,000

Pacific

Mountain

West South Central

East South Central

South Atlantic

West North Central

East North Central

Middle Atlantic

New England

Peak FAC High FAC Moderate FAC Base

ES-5

Among these categories, some barriers of particular importance include:

1. The lack of standardized systems (engineering and field integration of individually designed pieces ofequipment requires high quality engineering and high cost labor) which are in short supply and areexpensive.

2. The need to better match coincident electric and thermal loads with IES system capabilities.3. Supporting market infrastructure. 4. Antiquated and prohibitive policies and regulations.5. Lack of application and integration knowledge.

These barriers can often make an IES project appear unattractive, and can present such an uncertain ordifficult option to potential end users that more traditional HVAC and purchased power approaches arefavored. To overcome these barriers and maximize the many benefits of IES in the buildings sector,further R&D and IES application successes are needed to allow these technologies to compete with moreconventional options.

While the R&D needs vary by technology, the overall goal should be to support industry in developinglower cost integrated IES packages and or modular IES that improve source energy efficiency and reduceoperating costs. These packages or modular systems should cover a wide range of sizes and options to fitwith the varied needs of the buildings sector. Furthermore, integration of these IES into building systemsand with the grid requires that a new series of application know-how and empirical data be developed andtransferred to building owners, architects, consulting engineers, contractors, policy makers, regulators andcode officials.

ES-6

1-1

Section 1 INTRODUCTION

Integrated Energy Systems (IES) combine on-site power or distributed generation technologies with thermally activated technologies to provide cooling, heating, humidity control, energy storage and/or other process functions using thermal energy normally wasted in the production of electricity/power. IES produce electricity and byproduct thermal energy onsite, with the potential of converting 80 percent or more of the fuel into useable energy. IES have the potential to offer the nation the benefits of unprecedented energy efficiency gains, consumer choice and energy security. It may also dramatically reduce industrial and commercial building sector carbon and air pollutant emissions and increase source energy efficiency. Applications of distributed energy and CHP in Commercial and Institutional Buildings have, however, been historically limited due to insufficient use of byproduct thermal energy, particularly during summer months when heating is at a minimum. In recent years, custom-engineered systems have evolved incorporating potentially high-value services from Thermally Activated Technologies (TAT) like cooling and humidity control. Such TAT equipment can be integrated into a CHP system to utilize the byproduct heat output effectively to provide absorption cooling or desiccant humidity control for the building during these summer months. IES can therefore expand the potential thermal energy services and thereby extend the conventional CHP market into building sector applications that could not be economically served by CHP alone. Now more than ever, these combined cooling, heating and humidity control systems (IES) can potentially decrease carbon and air pollutant emissions, while improving source energy efficiency in the buildings sector. Even with these improvements over conventional CHP systems, IES face significant technological and economic hurdles. Of crucial importance to the success of IES is the ability to treat the heating, ventilation, air conditioning, water heating, lighting, and power systems loads as parts of an integrated system, serving the majority of these loads either directly or indirectly from the CHP output. The CHP Technology Roadmaps (Buildings and Industry) have focused research and development on a comprehensive integration approach: component integration, equipment integration, packaged and modular system development, system integration with the grid, and system integration with building and process loads. This marked change in technology research and development has led to the creation of a new acronym to better reflect the nature of development in this important area of energy efficiency: Integrated Energy Systems (IES). Throughout this report, the terms “CHP” and “IES” will sometimes be used interchangeably, with CHP generally reserved for the electricity and heat generating technology subsystem portion of an IES. The focus of this study is to examine the potential for IES in buildings when the system perspective is taken, and the IES is employed as a dynamic system, not just as conventional CHP. This effort is designed to determine market potential by analyzing IES performance on an

1-2

hour-by-hour basis, examining the full range of building types, their loads and timing, and assessing how these loads can be technically and economically met by IES. Status of IES While IES use in U.S. buildings is in its infancy, CHP systems have been in limited use in the buildings sector for decades. A number of data sources disagree on how many buildings currently use CHP, with Utility Data Institute figures citing about 2,600 MW and DOE’s Energy Information Administration (EIA) posting totals of about 1,900 MW. Independent energy organizations, such as the District Energy Library (www.energy.rochester.edu), hosted by the University of Rochester, cites CHP installations in educational institutions that surpass those quoted by these sources. In the report District Energy Systems Integrated with Combined Heat and Power, prepared by Mark Spurr of the International District Energy Association for the U.S. Environmental Protection Agency (EPA), Spurr examines these data sources and concludes that the total CHP serving buildings through District Energy Systems (DES) can be estimated at 3,500 MW. Comparing these figures with the total (industrial and buildings) CHP of about 46,000 MW in 1998, CHP in the buildings sector is only about 5-10 percent of the installed base. While the overall size of CHP in the buildings sector is somewhat uncertain, most agree that this market is led by educational facilities, with the health care sector also important. Some of the factors that drive the favorable economics of CHP in these building types are: • Occupancy levels are generally high, with students or patients occupying the facilities around

the clock, creating high load factors that help amortize the investment in CHP systems, • The balance between thermal and electric loads in these building types is relatively high (can

a balance be high?) , compared with other building types, • Multiple buildings under common ownership, so that electricity, heating, and cooling loads

can be aggregated and served by a central system that is larger and more cost effective than several smaller systems,

• Close proximity of buildings, so that connecting buildings with hot water/steam/chilled water distribution piping is not cost prohibitive,

• Buildings are occupied by the “owners” and not leased to tenants, so a higher degree of control and comfort is generally desirable.

Figure 1-1 illustrates the building sectors represented in the EIA data, with other sectors including airports and other transportation services, miscellaneous services, and entertainment/lodging also represented. These facilities generally share some, but not all, of the factors that are common in educational and health care institutions.

1-3

Figure 1-1. CHP Capacity in the Buildings Sector, by Building Type (EIA 1998, total of 1,870 MW)

DOE Objectives DOE’s focus on IES for buildings is part of a broader initiative aimed at increasing the use of IES. Assistant Secretary Dan Reicher announced a national goal of doubling the CHP capacity by 2010 at the CHP Summit in December of 1998. Since then, the Office of Energy Efficiency and Renewable Energy (EERE) has established the CHP Challenge to achieve this goal. With published levels of CHP at about 46 GW in 1998, this goal means adding an additional 46 GW by 2010. While it is generally agreed that the majority of this growth in CHP capacity would originate in the industrial sector, the building sector was seen as a source of new CHP to supplement industrial levels. As a result, the IES Initiative was founded to identify opportunities and barriers to applying a wide range of CHP and TAT technologies in buildings. The IES Initiative will also seek out appropriate actions among the growing number of industry, institutional, and governmental entities focused on the broader IES marketplace. This study supports and guides IES projects by assessing technologies and markets where IES is positioned for growth. Furthermore, this effort will identify areas where technology needs improvement and where substantial barriers exist, and the potential market effects of overcoming these obstacles. As a result, this study will: • Summarize the current state-of-the-art in cooling technologies that can be employed in the

buildings sector within an IES, including absorption, desiccant, and engine-driven units, • Quantify the buildings market for IES, and model the performance of these units so that the

full range of economic benefits can be incorporated, • Identify key market drivers and barriers, and

Education

Health Care

Airports/Transp.

Misc Services

Entertain/Lodging

Other

1-4

• Explore potential areas for technology research and development that could improve the prospects for IES in buildings.

While this effort focuses on the buildings sector, there are companion studies being completed that examine the potential for CHP in industry, and its ability to provide significant contributions to the CHP Challenge goal.

2-1

Section 2

IES FOR BUILDINGSSTATE OF THE ART

It is widely agreed that IES is a technology option that is underutilized in the buildingsector. While some of this is due to the insufficient economic returns related to seasonalheating and cooling loads, there are institutional reasons why IES is not more widelyused in buildings. Many building owners make their decisions on the basis of first cost,and IES options tend to cost more than conventional alternatives. Furthermore, thebuilding design community tends to be risk adverse, favoring the “tried and true”alternatives and not recommending options that they have not specified before. As aresult, the vast majority of buildings do not include IES.

A number of trends, however, are creating a IES-favorable environment for buildings.Electricity industry restructuring, while promising lower rates for larger users, has manybuilding owners concerned over rising prices and decreasing grid reliability.Furthermore, new standards of indoor air quality call for increased ventilating rates andhas helped renew interest in desiccant dehumidification, which changes the economics ofhumidity control in buildings and establishes another application for CHP waste heat.Finally, independent third parties such as ESCOs and utilities are investing in districtCHP systems, offering buildings new opportunities for savings without large investments.

Other factors that are creating a more IES favorable environmental are global warmingissues that have surfaced from the Kyoto protocol. The increased energy efficiency thatcan result from widespread use of CHP and IES is being counted on in many policyscenarios that have resulted from Kyoto compliance strategies. While industrial CHP isseen as critical to these scenarios, IES for buildings is also being counted upon.

This section provides an overview of the state-of-the-art of IES components forbuildings. It defines IES as it is applied to buildings and reviews the state-of-the-art forthe many components that comprise an IES, including the prime mover and the variouscooling options that can be coupled with CHP to form an IES for buildings.

Defining IES

IES are defined as the co-production of power along with heat for heating, domesticwater heating, and thermal-driven cooling and humidity control. This includes using avariety of CHP technologies along with absorption chillers or desiccant dehumidificationsystems. In addition, engine driven chillers coupled with heat recovery are also included.Figure 2-1 provides an illustration of these options depicted serving the whole range ofstand-alone building energy requirements, and Figure 2-2 illustrates these options formultiple buildings.

2-2

Figure 2-1. IES Options for Single Buildings

Utility

Was

te H

eat Conventional

non - CHP systemCHP system

w/ Absorption ChillerCHP system

w/ Desiccant Dehumidifier

Stea

m/H

ot W

ater

Electricity

Back

-Up

Elec

tricit

y

CHP System

Steam/Hot Water

Natural Gas Natural Gas

Desiccant Dehumidifier

CHP System

Stea

m/H

ot W

ater

Was

te H

eat

Was

te H

eat

Natural Gas Natural Gas

BoilerChiller

Absorption

Chiller

Chi

lled

Wat

er

Chiller

Chi

lled

Wat

er

Chi

lled

Wat

er

Domestic Hot Water

Space Heating

Space Heating

Domestic Hot Water

Air Conditioning

Space Heating

Domestic Hot Water

Air Conditioning

Ventilating Air

Air Conditioning

Ventilating Air Ventilating Air

2-3

Figure 2-2. IES Options for Multiple Buildings

Utility

Was

te He

atConventional

non - CHP system

Boiler

Stea

m/Ho

t Wat

er

Electricity

Elec

tricity

Natural Gas Natural Gas

Steam/ Hot Water

Chille

d Wate

r

Multi CHP system w/ Absorption Chiller

Back

-Up E

lectric

ity

Natural Gas Natural Gas

CHP System

Chiller

Absorption

Chiller

Waste Heat

Chille

d Wate

r

Space Heating

Domestic Hot Water

Air Conditioning

Ventilating Air

Domestic Hot Water

Space Heating

Space Heating

Domestic Hot Water

Air Conditioning

Space Heating

Domestic Hot Water

Air Conditioning

Ventilating Air

Air Conditioning

Ventilating Air

Ventilating Air

CHP Systems

A number of advances in CHP systems are becoming available that will enable these technologies toprovide electric and thermal energy in an efficient, clean, and cost-effective manner. Combined withelectric utility industry restructuring, these advanced technologies will challenge the ways thatfacilities currently meet demands for electricity and thermal energy. This section reviews the currentstatus of these technologies, and examines key developments that are needed to improve their cost andperformance.

Reciprocating Engines

Of the CHP technologies, reciprocating engines weredeveloped first (more than 100 years ago) and havelong been used for electricity generation. Both Otto(spark ignition) and Diesel Cycle (compressionignition) engines have gained widespread acceptancein almost every sector of the economy, and are usedfor applications ranging from fractional horsepowerunits for small hand-held tools to enormous 60 MWbaseload electric power plants.

Both diesel (compression ignition) andnatural gas (spark ignition) engines arewidespread. However, due to emissionregulations, it is becoming increasingly hard to backup units generally operated less than 200 hofocused primarily on natural gas fired spark ignalthough some use dual fuel engines (described stoichiometric, though newer units, especially inallows for increased efficiency and lower emiss

The primary pollutant of concern for natural gasdriver of NOx formation but nitrogen in the fuelelevated temperature/pressure also have a role in

Manufacturers have developed dual fuel enginemarket penetration. While most of these are lartake advantage of natural gas emissions, economlower maintenance, and reliability benefits of coa small amount of diesel “pilot” fuel along withspark ignition, the diesel fuel is injected into theorder to initiate combustion. Dual fuel engines particulate emissions than diesels. Additionallyincorporating a pre-ignition chamber that lower

Figure 2-3. Waukesha ATGL (1.2 – 2.5 MW)Series Natural Gas Engine

2-4

site diesel generators, except those used as emergencyurs annually due. New engine CHP applications are

ited (SI) units in the 60 kW to 4 MW size range,below). Most installed natural gas units are larger sizes, focus on lean-burn technology which

ions from the combustion chamber.

fired SI engines is NOx. Temperature is the primary, pressure in the cylinder, and residence times at the amount of NOx that will ultimately be produced.

s up to 8 MW that are beginning to achieve someger, smaller units are being tested. Dual fuel enginesics, and convenience while keeping the efficiency,mpression ignition technology. Dual fuel engines use

the primary natural gas fuel. In lieu of the traditional cylinder along with the natural gas/air mixture inare typically more efficient and have lower NOx and, significant reductions in emissions can be obtained bys the amount of diesel pilot fuel necessary for ignition.

2-5

Noise can be an issue with reciprocating engines, particularly in urban areas. Soundenclosures may be required to reduce ambient noise to acceptable levels.

Turbines

Combustion turbines have been used for powergeneration for decades, ranging in size fromsimple cycle units starting at about 1 MW up toseveral hundred MW when configured as acombined cycle power plant. Units from 1-15MW are generally referred to as industrialturbines, differentiating them from larger utilitygrade turbines and smaller microturbines. Unitssmaller than 1 MW exist, but few have beeninstalled in the U.S. Microturbines promisinglow emissions, relatively low maintenance, andother benefits are emerging and will providecompetition for smaller reciprocating engines.Traditionally, turbine applications have beenlimited by lower electrical efficiencies to CHPuses at industrial and institutional settings andpeaking units for electric utilities. Howeverrecent advancements in turbine technology brought Advanced Turbine Systems (ATS) program promisecommercial units through advanced materials, cycle

Combustion turbines feature relatively low installedmaintenance. With these advantages, combustion tuwhen a continuous supply of steam or hot water anduse turbines solely for power generation, when emisengines are seen as a disadvantage. Few turbines arpeak shaving applications, mostly due to their highelonger startup time when compared with reciprocatinpurposes. Some users, however, have shown a prefedue to perceptions of starting reliability.

Industrial turbines have historically been developed engines used for jet propulsion. Some, however, havstationary power generation or compression applicatMultiple stages are typical and differentiate these tursmaller microturbines, which have radial blades andthat cools combustion air between compressor stagereserved for larger turbines that can economically inimprovement in efficiency.

Figure 2-4. Rolls-Royce Allison 501-KTurbine Power Package

about by the Department of Energy to increase efficiencies ofs, and recuperation.

cost, low emissions, and infrequentrbines are typically used for CHP power is desired. Some applicationssions from natural gas reciprocatinge used for emergency, standby, orr cost, lower electrical efficiency andg engines designed for theserence to turbines for emergency uses

as aero derivatives, spawning frome been designed specifically for

ions in the oil and gas industries.bines, along with axial blading, from are single staged. An intercoolers may be employed but is usuallycorporate the cost of this

2-6

Given that combustion takes place outside of the turbine area (unlike reciprocatingengines, where combustion takes place inside the cylinder), turbines have more flexibilityin reducing NOx emissions. NOx emissions from uncontrolled turbines range from 75 toover 150 ppm, due to high combustion temperatures. Emissions control of combustionturbines has typically been accomplished by water or steam injection to reduce thecombustion temperature and reduce NOx levels down to 25-45 ppm. In addition, thesemethods increase power production but often reduce the system efficiency. While thesemeans have been proven effective in limiting NOx emissions, the availability of watersupply, cost of water treatment, and space for storage tanks are constraints for someapplications. In many states, these measures are deemed adequate to meet NOxregulations.

Dry Low NOx (DLN) combustors are being increasingly used to reduce emissions furtherand eliminate the need for the water supply and storage associated with water or steaminjection. DLN creates a lean, homogeneous mixture of air and fuel prior to thecombustor, minimizing hot spots which create higher NOx concentrations, and overallreducing the combustion temperature leading to lower NOx levels, down to about 25 ppmin CHP sized units and to under 10 ppm in larger, central station units. Conceptually, thismethod is similar to lean-burn technology for reciprocating engines. This method hasbecome the standard for NOx control in combustion turbines.

Fuel Cells

Fuel cells are an emerging class of small-scale power generation technology in themostly in the under 1 MW size rangealthough larger units are underdevelopment. The first fuel cell wasdeveloped in the 1800s but they were notused as practical generators of electricityuntil the 1960's when installed in NASA’sGemini and Apollo spacecraft. Onecompany, UTC Fuel Cells (formerlyInternational Fuel Cells/ONSI), currentlymanufactures a 200 kW fuel cell that isbeing used in commercial and industrialapplications. A number of other companiesare currently field testing demonstrationunits, and commercial deliveries areexpected in 2002-2005.

The main differentiation among fuel cell types is in the electrolytic material. Eachdifferent electrolyte has benefits and detriments based on cost, operating temperature,achievable efficiency, power to volume (or weight) ratio and other operational

Figure 2-5. Fuel Cell Energy’s 2 MW MoltenCarbonate Fuel Cell power plant demonstrationin Santa Clara, California

From

Fuel

Cel

ls.o

rg

2-7

considerations. Currently only Phosphoric Acid fuel cells are being producedcommercially for power generation. Other types have entered the testing anddemonstration phase and it is likely that solid oxide and molten carbonate fuel cells willbe the major players in the larger (>200 kW) size range. Both operate at highertemperatures and require long “startup” time, so are well suited to baseload powergeneration or CHP. Unlike the development of other power generating technologies, fuelcell development is focused more on getting units to work and demonstratingeffectiveness than on refining current models.

Although fuel cells were first designed as purely electric generators, they havetransportation applications. Automobile manufacturers through in-house R&D andalliances with fuel cell manufacturers are increasingly funding fuel cell development.Currently most transportation fuel cell efforts focus on Proton Exchange Membrane(PEM) fuel cells which have a good power to volume ratio. PEMs also have somepotential for providing residential power. However, for the most part, fuel cells primarilyused for power generation such as Phosphoric Acid, Solid Oxide, and Molten Carbonate,are not suited for transportation use.

Fuel cells require hydrogen for operation. Since it is often impractical to use hydrogendirectly as a fuel source, it must be extracted from other hydrogen-rich sources such asgasoline or natural gas. Cost effective, efficient fuel reformers that can convert variousfuels to hydrogen are necessary to allow fuel cells increased flexibility and bettereconomics. Some molten carbonate and solid oxide fuel cells employ internal reformingwhich eliminates the expense of an external reformer. Fuel cells have very low levels ofNOx and CO emissions, all resulting from the reforming process. Using gasifiers toproduce hydrogen fuel from sources such as biomass could help to increase flexibilityand market share of fuel cells, although the sulfur content of biogases can requireextensive additional pretreatment to avoid contaminating fuel cell catalysts.

2-8

Unit Price and Performance

While price and performance data on reciprocating engines and turbines is fairly wellestablished, data for fuel cells is based on a limited number of demonstration projects.As a result, comparisons of price and performance should be interpreted with someuncertainty. The price and performance of engines, turbines, and fuel cells issummarized in Table 2-1. This information was collected from a number ofmanufacturers and their distributors. The market analysis presented in the next section isbased on representative units taken from this data.

Table 2-1. Cost and Performance of CHP Systems

Technology Engine Turbine andMicroturbine

Fuel Cell

Size 30kW – 8MW 30kW - 20+MW 100-3000kW

Installed Cost ($/kW)1 300-1500 350-1500 2000-5000

Elec. Efficiency (LHV) 28-42% 14-40% 40-57%

Overall Efficiency2 ~80-85% ~85-90% ~80-85%

Variable O&M ($/kWh) .0075 - .02 .004-.01 .002-.05

Footprint (sqft/kW) .22-.31 .15-.35 .9Emissions (lb / kWhunless otherwisenoted)

Diesel: NOx: .022-.025 CO: .001-.002NG: NOx: .0015-.037 CO: .004-.006

NOx: 3-50ppmCO: 3-50ppm

NOx:

2-9

Supplemental equipment needed for fuel processing, gas compression, recuperation, andcontrol systems is a significant portion of overall costs, so improvements here may go along way toward meeting overall price targets. Fuel cells have, by far, the highest capitalcosts of technologies. Substantial cost reductions, primary in the stacks, are needed toallow fuel cells to compete with other generating technologies and the grid.

A key contributor to installed costs is the interconnection package, although these costsare most significant for smaller (

2-10

clear advantage, especially in severe non-attainment zones. Fuel cell CO2 emissions arealso generally lower than other technologies due to their higher efficiencies.

Reliability / Availability. Engines require more periodic maintenance than competingtechnologies and thus have more mandatory downtime. Due to the often very high costof utility backup power, downtime can be very expensive. In addition, reliance onoutside service providers or in-house staff for this maintenance can be a concern for somefacilities. Turbines potentially have lower maintenance requirements than engines. Theunder 1 cent per kWh level of larger turbines allows them to be more competitive withsimilar-sized reciprocating engines. Fuel cells, themselves, have no moving parts andtherefore have the potential to have very low maintenance. However, support systemssuch as pumps and fans necessary for the operation of the fuel cell can be costly tomaintain and result in increases in both scheduled and unscheduled downtime. Alsostack replacements, required at 40,000 hours (estimated) to keep efficiency high, addsignificantly to maintenance cost. Again, fuel cells have not been demonstrated longenough to validate these expectations.

Useful Thermal Output. From engines, usable thermal output comes from the jacketwater, exhaust gases, and the oil. The ability to capture and utilize all available thermaloutput is dependent on effective heat exchangers and conducive site thermal load. Inorder for a majority of an engine’s thermal output to be utilized, the output must be usedfor either hot water or low temperature steam. All turbine thermal output is in theexhaust, which gives it an advantage over engines in that heat recovery is from only onestream and at higher temperatures. Turbines thus have a greater potential to generatesteam, and can be advantageous in sites with high steam requirements. However, as withengines, some of the turbine thermal output needs to be utilized in the heating ofrelatively low-temperature water to achieve high overall efficiencies. In addition,recuperated units have relatively low exhaust temperature and cannot produce significantamounts of steam. High temperature fuel cells such as molten carbonate or solid-oxidefuel cells are designed to produce heat of higher quality than that of reciprocating enginesor even turbines. These fuel cells are better suited than engines or turbines to meet thethermal needs of sites with a high quality steam demand.

Future Improvements

Based on technical literature and interaction among manufacturers and other industryparticipants during the workshops, expectations of future cost and performanceimprovements were formulated. Each technology is expected to improve in the next 5 to10 years and could result in significantly improved economics and greater marketpotential.

Absorption Chillers

Absorption chillers are an important option for IES building applications. They employCHP thermal output during cooling periods when heating uses are limited to domestic hot

2-11

water loads or zonal heating, which may be small in many building types. These unitsinvolve a complex cycle of absorbing heat from the CHP system to create chilled water.The waste heat from the CHP system is used to boil a solution of refrigerant/absorbent,most systems using water and lithium bromide for the working solution. The absorptionchiller then captures the refrigerant vapor from the boiling process, and uses the energy inthis fluid to chill water after a series of condensing, evaporating, absorbing steps areperformed. This process is essentially a thermal compressor, which replaces the electricalcompressor in a conventional electric chiller. In doing so, the electrical requirements aresignificantly reduced, requiring electricity only to drive the pumps that circulate thesolution.

This process is employed by single-effect chillers. Double-effect units are availablewhich add another boiling and condensing step at higher temperature, thus attaininghigher efficiencies. Single-effect units offer coefficient of performances (COPs) of about.7, where double-effect units attain levels of about 1.2, which are about 70 percent higher.Double-effect units, however, require a higher temperature source that cannot beprovided by some CHP systems, particularly smaller reciprocating engines, turbines, andfuel cells. Both direct-fired (typically natural gas) and indirect-fired (typically usingsteam or hot water) units are available. With the focus of this study being units that workwith a wide range of CHP systems, single-effect, indirect-fired absorption chillers are theonly option considered in the market analysis.

While the absorption chiller technology has been around since the late 1800s, historicallythe manufacturing base for these units was largely in Japan. Japan had developed theseunits to help reduce dependency on high cost imported fuels, and recognized the benefitsof higher efficiency levels that could be attained. During this period, however,availability and lead time for U.S. orders lagged that of conventional electric chillers, andthus only a small niche market emerged. In the 1990s, however, several of the largestU. S. manufacturers of electric chillers developed offerings, and were able to reduce costsand lead times, and improve availability. As a result, the market for absorption chillershas been growing. The cost and performance of single-effect, indirect-fired absorptionunits is summarized in Table 2-3.

Table 2-2. Cost and Performance of Single-Effect, Indirect-Fired AbsorptionChillers

Tons Cost($/ton)

Electric Use(kW/ton)

Thermal Input(Mbtu/ton)

Maintenance Cost($/ton annual)

10-100 700-1200 .02-.04 17-19 30-80100-500 400-700 .02-.04 17-18 20-50

500-2000 300-500 .02-.05 17-18 10-30

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Engine-Driven Chillers

Engine-driven chillers (EDCs) are basically conventional chillers driven by an engine, inlieu of an electric motor. They employ the same thermodynamic cycle and compressortechnology that electric chillers use, but use a gas-fired reciprocating engine to drive thecompressor. As a result, EDCs can be economically used to provide cooling where gasrates are relatively low and electric rates are high. Another benefit offered by EDCs arethe better variable speed performance, which yields improved part load efficiencies.EDCs operate in a CHP system when the waste heat produced by the engine is recovered,and used for space heating and/or domestic hot water loads. Since most buildings havelimited periods of coincidence heating, most of the thermal output is used for domestichot water heating. Although EDCs with heat recovery show promise for applicationswith large hot water loads such as hotels or hospitals, for this analysis it was assumed thatEDC systems would not be combined with heat recovery.

Like conventional electric chillers, EDCs are available with three different types ofcompressors. In the below 200 ton range, reciprocating compressors are typicallypackaged with the engine. In applications ranging from over 200 tons to less than about1,200 tons, both screw and centrifugal compressors are used. In the largest sizes over1,300 tons, centrifugal compressors are the only option.

As with reciprocating engine generators, EDCs offer options of heat recovery for BCHPsystems, and emissions controls for installations located within areas of strictenvironmental regulations, such as ozone nonattainment areas. Table 2-3 provides thecost and performance data on engine-driven chillers.

Table 2-3. Cost and Performance of Engine Driven Chillers

Tons Cost($/ton)

Electric Use(kW/ton)

Thermal Input(Mbtu/ton)

Maintenance Cost($/ton annual)

10-100 800-1050 .05-.07 9-12 45-100100-500 650-950 .01-.05 8-11 35-75

500-2000 450-750 .003-.01 7-8 25-60

Desiccant Dehumidification Systems

Conventional electric chiller systems control humidity by cooling air to a lowertemperature where the air can no longer hold as much moisture. This moisture condenseson the cooling coil, and when the cool, dry air mixes with the remaining air in thebuilding, it effectively reduces the humidity level within the building. The reduction oftemperature is referred to as the sensible load, and the removal of moisture in the air isdefined as the latent load. Conventional chiller systems, however, can only controlhumidity when they are operating. During periods when cooling is not needed,conventional chillers can only remove humidity by overcooling the ventilating air toremove moisture, and reheating the dehumidified air to the comfort level of the building

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occupants. This process of overcooling and reheat is very energy inefficient, andincreases building operating costs. In the past, however, ventilation rates have been heldlow to conserve energy, and humidity control has been less critical and often ignored.

In the late 1980s, however, there was a push to improve Indoor Air Quality (IAQ) due toseveral incidences where insufficient ventilation has led to “sick building syndrome” andhealth problems among building occupants. ASHRAE Standard 62-89 (since updated to62-2000) recommends 15 cfm per person as a minimum ventilation rate, increasing thisbaseline from its previous value of 5 cfm per person. With higher ventilation rates,especially during humid summer months, conventional chillers may not adequatelycontrol humidity. This is especially true with chillers that are controlled by a thermostatto cycle on and off to respond to building cooling load fluctuations.

As a result, desiccant systems have been developed for commercial building use. Thesesystems have been used for over 50 years, originally developed for drying of process airfor ship cargo, pharmaceutical manufacturing, film processing, and other applications.Industrial firms still depend on desiccants for these and other high value applications todry process air. With the recent push towards building humidity control, manufacturersof desiccant systems have developed new packages designed to treat building ventilatingair efficiently.

Desiccant systems incorporate desiccant materials, which absorb moisture from air.After a period of exposure to humid air, these materials become saturated, and requireregeneration if they are to be reused. This regeneration is typically accomplished byexposing the desiccant material to heated air. Desiccant systems typically incorporate adesiccant wheel, which rotates between a stream of ventilating air (from which it removeshumidity) and a stream of heated air (which regenerates the desiccant material). Byrotating through these two streams of air, the desiccant wheel dehumidifies theventilating air and rejects the moisture to the heated air stream. Desiccant systemsbecome a part of a CHP system when they use the waste heat from the CHP system toprovide regeneration.

Desiccant systems, by removing latent load from the ventilating air, can effectivelyreduce the amount of cooling necessary from the building chiller. There is a smallincrease in sensible load introduced, since the process heats the ventilating air before it isintroduced into the building space. While some of the heating comes from “carryover” ofthe heat from the regenerative process, most comes from the latent heat of water beingconverted from a vapor to liquid as it is absorbed by the desiccant.

This added sensible load can be removed by directing the ventilating air through thebuilding chiller, or by incorporating a recuperative heat exchanger or evaporative cooler.For the purpose of this study, however, the former solution will be applied. Desiccantsystems also require electricity to drive the fans that create the airflow through thedesiccant wheel. Even with these energy requirements, desiccants can be an energyefficient method of controlling humidity. By enabling control of latent loads without

2-14

expensive overcooling and reheating, desiccant systems offer much improved flexibilityand energy efficiency.

Because desiccants serve air conditioning loads differently than conventional chillers,their capacity and efficiency are rated differently. System capacity is often expressed involume of airflow (cfm), and sometimes in moisture removal rate (lbs/hr). Infrequently,a unit’s capacity will be expressed in cooling tons, and in these cases, sensible tons mustbe differentiated from latent tons. Care must be taken when comparing these units withthose of conventional chillers, since the desiccant unit performance varies with theconditions of the ventilating air and the desired control levels of the space beingconditioned. Furthermore, the COPs of desiccant systems vary if evaporative orrecuperative cooling is incorporated, and depending on the source of energy used forregeneration (i.e. direct-fired versus waste heat). One method of determining theperformance of a desiccant system is to evaluate its effect on the conventional coolingsystem, in terms of displaced cooling load. Using this method, one can determine theeffective capacity of a desiccant system as it relates to the entire building system. Thecost and performance of desiccant systems is shown in Table 2-4.

Table 2-4. Cost and Performance of Desiccant Dehumidification Systems

SCFM Cost($/SCFM)

Thermal Input(hourly Btu/scfm)

Maximum Latent Removal(hourly Btu/scfm)

1500-5000 8-18 30-100 30-605000-10000 6-11 30-100 30-60

10000+ 6-9 30-100 30-60

3-1

Section 3

MARKET POTENTIAL

To achieve widespread use in buildings, IES must treat the heating, ventilation, air conditioning,water heating, lighting and power loads as an integrated system, serving the majority of theseloads either directly or indirectly from the CHP output. The market analysis used in this studyexamines the potential for IES when the system perspective is taken, and IES works as a buildingsystem that helps cooling needs, and not just as conventional CHP.

The analysis is performed using RDC’s DIStributed Power Economic Rationale SElection(DISPERSE) model. This tool is a spreadsheet-based model that estimates the achievableeconomic potential for IES by comparing various options with traditional equipment. TheDISPERSE model calculates fuel use, on-site electricity generation, electric and natural gas bills,installed cost, and economic return on investment for individual facilities. In this effort, theDISPERSE model was configured to analyze commercial buildings throughout the U.S. usingload profiles that estimate cooling, heating, hot water, and electricity loads based on a number ofdifferent cities in the U.S., and simple payback was used as the economic decision measure.

As a result, this study was able to analyze IES performance on an hour-by-hour basis, examiningthe full range of building types, their loads and timing, and assessing how these loads can betechnically and economically met by IES. Appendix A provides more details regarding themethodology and input data. The analysis was designed to examine both single buildings andmulti-building facilities. Multi-building facilities were analyzed as one set of loads on a systemthat serves several buildings, each sharing the capital costs and the savings in energy costs. IESoptions analyzed for both single buildings and multi-building facilities include CHP withabsorption chillers, and engine-driven chillers. In building types without central chilled waterdistribution systems, CHP only scenarios have been evaluated.

Before publication of the 1997 edition of the ASHRAE Handbook of Fundamentals (AmericanSociety of Heating, Refrigerating, and Air Conditioning Engineers), design professionals lackeddata describing extreme (design) moisture load conditions. Cooling and dehumidificationsystems (typically air conditioning systems) are usually designed based on extreme (design)temperature conditions and fall far short of capacity when moisture really reaches its peak –usually at moderately warm temperatures. Thus, although it is felt that excluding waste heat-regenerated desiccant dehumidification as a function provided by IES in this initial marketassessment is a reasonable representation of current building stock and conditions in the U.S., afollow-up assessment effort is planned. That supplementary assessment will includeconsideration of new ASHRAE design moisture data and ASHRAE 62-2000 ventilation standardrequirements and will likely show penetration by IES/desiccant combination systems and, as aresult, will increase the total market potential.

3-2

IES Compatibility With Buildings

IES systems were analyzed only for buildings with CHP-compatible utility service anddistribution systems. Compatible utility service required both gas and electric service on-site.Heating distribution systems include district hot water/steam, boilers with hot water/steam, andfurnaces with forced air distribution. For cooling systems, district chilled water or centralchillers with chilled water distribution were addressed. Since CHP-only systems can be appliedin buildings without chilled water distribution, the minimum criterion was buildings with electricand gas service. As shown in Table 3-1, 54 percent of building square footage in the U. S. hascompatible utility service and distribution systems. Of the 46 percent that do not, 35 percent areeliminated due to lack of utilities (mostly availability of natural gas) and 11 percent have non-compatible distribution systems (mostly packaged terminal units).

Table 3-1. Buildings With CHP-Compatible Utility Service and Distribution Systems

Million Sq. Ft. % of TotalTotal 58,772 100%

With electricity 57,076 97%With electricity and natural gas 38,009 65%

With utilities and dist. System 31,611 54%Hot water distributionsystem

7,756 13%

Hot and chilled waterdistribution systems

8,553 15%

Forced air distributionsystem

15,035 26%

Forced (hot) air and chilledwater distribution system

267 0%

Non-compatible distribution systems 6,398 11%Source: 1995 Commercial Building Energy Consumption Survey (CBECS), EIA

As shown in Table 3-1, buildings with forced air distribution were included as CHP compatible.This is based on integrating air-to-air heat exchangers into the system to recover the CHP wasteheat and transfer the heat into the building distribution system. While this is not a commonpractice in building CHP systems, it is an option that is used in industrial systems and couldpotentially expand the base of buildings with IES, particularly smaller sites.

The Potential Building Market for IES

The analysis revealed that the potential building market for IES is over 35 GW by year 2020,including CHP with absorption chillers, engine-driven chillers, and CHP-only systems forbuildings without chilled water distribution. This market potential is based on achievableeconomics, where the IES option provides a minimum payback of 10 years compared withconventional HVAC systems and grid purchasing using an economic analysis described inAppendix A.

3-3

As shown in Table 3-2, this potential includes both system turnover in existing buildings, as wellas IES in new buildings. Included in this market is a significant potential for new absorptionchillers (8.9 million tons), thermal storage (3.2 million tons), and engine driven chillers (2.4million tons). Together, if implemented this market potential would represent almost 18 millionmetric tons of reduced carbon dioxide emissions (based on carbon equivalent) annually by theyear 2020, and would contribute significantly to meeting the goals originally established by theKyoto Protocol. This reduction in carbon emissions is based on displacing grid emissions fromaverage U.S. utility plants.

Table 3-2. Building Market Potential for IES

2010 2020Turnover New Turnover New

Capacity (GW) 10.4 6.5 19.0 16.5Displaced Electricity (GWh) 66,900 45,800 133,900 117,100 Capital ($million) 6,380 4,150 12,750 10,430 Incremental NG Use from CHP(Tbtu) 550 380 1,090 960 Boiler Fuel Displaced (Tbtu) 90 60 180 170 Absorber (1000 tons) 3,310 2,340 6,630 5,860 Storage (1000 tons) 740 670 1,480 1,730 Engine Driven Chiller (1000 tons) 630 470 1,260 1,180 CO2 Displaced From Utility (MtC) 12.1 8.3 24.3 21.2 MtC Produced By Incremental NG 7.9 5.4 15.8 13.9 CO2 Displaced from Boiler (MtC) 1.8 1.2 3.5 3.3 CO2 Displaced (MtC) 6.0 4.1 12.0 10.6

Note: Boiler fuel displaced is net of additional natural gas required by absorptionunits during peak cooling periods to supplement thermal output from CHP units.

This market potential, when compared to the estimated IES capacity of 3.5 GW currentlyinstalled, yields a current penetration level of less than 10 percent. Increasing market penetrationto 50 percent levels would add over 14 GW of capacity, but would first require significantlowering/removal of the many barriers that exist (see Section 4).

The system turnover analysis was accomplished by assessing the existing base of buildings, andapplying IES as their convention systems (i.e. boiler and electric chiller) require replacement.Over the 2000-2020 timeframe, the entire existing base of buildings was projected to turn over,with a portion of the buildings requiring systems replacement each year over the 20-year period.The building turnover market potential was estimated at approximately 19 GW. The loadprofiles used for the system turnover analysis assumed a vintage stock of building equipment,including less efficient envelope and other building systems.

The new building analysis applied forecasted rates of building construction to the existing baseof buildings, and evaluating these buildings for IES. Assumptions were made that the mix ofdistribution systems used in a particular region would be also used in the new buildingsconstructed in that region. Assessing the forecasted growth in buildings on a regional basis,again using local utility rates and gas prices, as well as load profiles for each building type, theanalysis found a potential market of 16.5 GW for new buildings. For the new building analysis,the load profiles assumed a new, more efficient envelope and other building systems.

3-4

The market potential includes analysis of both single-buildings and multi-building facilities.Single buildings were analyzed by evaluating a full range of conventional systems and IESoptions including absorption units and engine driven chillers. For both conventional systems andIES a variety of system operating strategies were employed, using storage as well as baseloadedand peaking chillers (see Appendix A for details). Both engine- and turbine-based IES wereevaluated, using systems sized based on the building size, and ranging from small spark ignitedgas engines and microturbines to large turbines.

Figure 3-1. Distribution of IES Market Potential by Cooling Operating Scheme

The results indicated that each cooling option had a unique operating scheme that offered thebest economics. For CHP with absorption chillers, operating the chiller to serve both baseloadand peak loads, as well as operate on-peak and off-peak made the most sense. This wascompared to using the absorption unit for peaking only, baseload only, and examining on-peakonly operation as well as using storage for peaking operation. Considering all of these options,92 percent of the cases where absorption made sense were for absorption serving the entirecooling load (28 percent overall). Engine-driven chillers had better economics when baseloadedduring both on-peak and off-peak periods, using an electric chiller for peaking. Again, optionsfor using the EDC full time, as well as using storage or using the EDC only during peak periods,were examined and the baseloaded scheme was the most economic. A major reason for thisdifference is that, other than for the smaller sizes, EDCs tend to be more expensive to install andoperate than single-effect absorption units, so baseload operation makes more sense.

Figure 3-2 shows that the market potential is spread relatively evenly among the new/singlebuilding, turnover/single building, new/multi-building, and turnover/multi-building markets.

CHP w/Absorption Baseloaded and

Peaking (Peak+Off-Peak)28%

CHP w/Absorption Other Operating

Schemes 3%

EDC Baseloaded (Peak+Off-Peak)

7%

EDC Other Operating Schemes

0%

Straight CHP62%

3-5

Figure 3-2. Market Potential for Single Buildings and Multi-Building Facilities in 2010 and 2020(GW)

In 2010, the turnover market is larger, with the single building market the biggest portion. In2020, this remains the case, but with both new building markets taking a larger share. This isdue to the relatively constant turnover in existing building systems throughout 2000-2020,compared to the new buildings that have been forecasted to be added at a faster rate in the 2010-2020 timeframe.

The multi-building analysis again evaluates a full range of IES options against the conventionaloptions, but also includes a set of central IES options that would enable the building to invest ina central IES and share in the energy savings. For this analysis, multi-building facilities (MBFs)in urban areas (required for density to decrease costs of connecting buildings with chilled waterand hot water/steam distribution piping) were evaluated. These options were designed forgroups of multi-building facilities to share a system that would serve a “virtual” campus ofbuildings, targeted at 1 million square feet. These buildings were then evaluated by includingthe option to purchase a portion (based on their square footage) of the MBF system, and share inthe operating cost and output on this basis. For MBFs that did not possess the suitable buildingheating or cooling distribution system, these buildings were given the option of CHP only (forthose with suitable heating distribution) or installing suitable distribution systems.

New - Single Bldgs19%

New - Multi Bldgs19%

Turnover - Single Bldgs33%

Turnover - Multi Bldgs29%

New - Single Bldgs23%

New - Multi Bldgs24%

Turnover - Single Bldgs28%

Turnover - Multi Bldgs25%

Year 2010(16.8 GW)

Year 2020(35.5 GW)

3-6

Table 3-3. Breakdown of Market Potential by Distribution System (MW in Year 2020)

IES Market PotentialBldg Distribution Heating/CoolingLoop On-Site Central

BuildingType

Heating Cooling Heating Cooling CHPOnly

CHPw/Absorber

EDC CHPOnly

CHPw/Absorber

Hydronic None NA NA 1,700 - - - -

Hydronic Hydronic NA NA 1,300 3,200 1,700 - -

Forced Air Hydronic NA NA - 100 100 - - SingleBldg

Forced Air None NA NA 4,000 - - - -

Hydronic None None None 800 - - 1,700 -

Hydronic None Yes None 100 - - 500 -

Hydronic Hydronic None None 2,200 2,100 600 300 600

Hydronic Hydronic Yes None 300 300 - 5,700 200

Hydronic Hydronic Yes Yes - 100 - 3,500 4,000

MultiBldg

Hydronic Hydronic None Yes - - - - 300

TOTALS 10,461 5,820 2,443 11,664 5,014

Figure 3-3 illustrates the types of IES that represent this market potential. CHP-only systems areby far the most representative, with 22 GW in potential. This large share is primarily due to thebase of buildings (both single buildings and multi-building facilities) that possess hotwater/steam or forced air distribution systems but do not have chilled water distribution. Thisbase of buildings, as shown previously in Table 3-1, is almost two-thirds of the base of buildingsthat have gas and electric utility service. Further assessment could determine the potential fordistribution of small heat activated air conditioning throughout buildings with hot water or steamloops and no chilled water distribution systems

Another contributor to the CHP-only market is the base of smaller buildings. For smallerbuildings, the additional cost for CHP with absorption chillers is high compared to CHP-onlysystems due to the relatively high cost of indirect-fired absorption units in the under 100 tonrange. The larger buildings that have both suitable heating and cooling systems offer a potentialof 11 GW of CHP units with absorption cooling systems, and an additional 2 GW of engine-driven chillers make up the remainder of the IES. The recent development of direct exhaust gaspower absorption chiller technology in the 500 ton range provides an important cost reductionfor IES which will further reduce the economic payback time of these systems.

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Figure 3-3. Distribution of Market Potential Among Variations in IES

As previously discussed, the buildings are analyzed with load profiles based on controllinghumidity at 60 percent relative humidity levels. This control, however, is not strictly incompliance with ASHRAE 62-2000, and thus does not use high levels of reheat. As a result,technologies such as desiccant dehumidification could have an important effect on future marketpotential.

A wide range of IES unit sizes is represented in the potential market. Units from 30 kW on up toover 10 MW were evaluated for IES applications, including both engines and turbine primemovers. As shown in Figure 3-4, the dominant size ranges are between 30 kW and 500 kW,representing over 45% of the potential. Within these size ranges, spark-ignited natural gasengines hold an edge over turbines due to their higher electrical efficiency and competitiveinstalled cost. A small number of microturbines emerge in the 100-500 kW sizes, and in thelarger sizes over 1 MW, more turbines emerge as these systems are designed for largerapplications such as industrial or multi-building facilities. In larger sizes, the difference inelectrical efficiency between engines and turbines narrows, and the overall efficiency edgeoffered by turbines allows them to gain market potential. A number of these larger IES systemsalready exist in universities throughout the U. S.

-

5,000

10,000

15,000

20,000

25,000

CHP Only CHP w/Absorber EDC

Mar

ket P

oten

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Figure 3-4. Market Potential for IES by Size and Type of CHP Prime Mover

Analysis of Building Types

To date, most IES is concentrated in education and health care buildings. The education sectorincludes universities, which have long used CHP as a means of controlling utility costs. Whilesome barriers still exist in this sector, such as the price of backup power and the regulated marketfor surplus power, other barriers such as first cost have not been factors in CHP marketpenetration. Similarly, hospitals have a smaller but still significantly large installed base ofCHP, and lodging has a small base of applications.

For other building sectors, the economics of IES holds promise, but barriers prevent widespreadadoption. As shown in Figure 3-5, the potential for IES is highest in office buildings, with over10 GW of total IES, including significant opportunities for CHP with absorption units andengine-driven chillers (45 percent of the office potential). Of that 4.5 GW, CHP with absorbersrepresent over 3.6 GW and EDCs 1.1, giving offices almost half of the total EDC potential.

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Figure 3-5. IES Potential by Building Type

Hospitals and colleges, while already established in the CHP use, each offer over 7 GW ofpotential for IES, respectively. Schools, retail, and hotels are smaller segments, but with theirsignificant heating and cooling loads offer additional IES potential plus opportunities forabsorption units and EDCs. Schools and apartment buildings offer the highest share of CHPwith absorbers or EDCs, constituting over half of the total IES potential for that building type.

Military bases and supermarkets, offer potential for IES, but not much for absorbers or EDCs.Supermarkets tend to lack chilled water distribution systems, and military bases do not generallyhave base-wide cooling distribution systems.

Regional Analysis

The economics of IES is driven largely by the relative gas and electric prices. Portions of theU.S. where low gas prices and/or high electric prices prevail often offer good conditions for IES,and areas where both high electric and low gas prices offer ideal conditions. Figure 3-6illustrates the electric and gas prices using a term coined in wholesale energy markets: “sparkspread.” Spark spread is defined as the difference, or spread, between grid electricity prices andthe fuel cost necessary to generate electricity using natural gas.

Figure 3-5 illustrates the “spark spread” for IES across the U.S., using a typical natural gasengine as the generating option. This figure shows that the top states for IES potential offer over

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6 cents per kilowatt-hour spread, primarily due to high electric rates, and include Alaska,California, New York, New Jersey, Vermont, and New Hamshire. Not coincidentally, most ofthese top states (excluding Alaska) have made significant progress towards electric industryrestructuring. Other states in the New England, Middle Atlantic, Mountain, West South Central,and East North Central offer attractive IES spreads in the 4 to 6 cents per kilowatt-hour range.

These “spark spreads” help explain the regional distribution of IES potential. Figure 3-7presents a regional distribution of the IES potential:

• The Pacific region, dominated by the a large building population, high electric prices andintensive cooling loads in California, offers the most IES potential. This region also offersthe most potential for CHP with absorption or EDCs. There is some CHP-only potential dueto still significant heating loads.

• The Middle Atlantic and New England regions each have a significant share of the IESpotential, based on reasonably favorable spark spreads coupled with generally adequatecooling loads. These regions, also due to the favorable spark spreads, offer a major portionof the CHP-only potential but offer a lower percentage of the CHP with absorption or EDCs.The West North Central region also follows this pattern, but on a smaller scale due to lessfavorable spark spreads.

• The South Atlantic, West South Central, and East North Central regions, surprisingly, offer abalance between CHP with absorption or EDC cooling (about 40-45 percent of the total) andstraight CHP (about 55-60 percent). The spark spreads here are marginal, in general, butsome states (TX, IL, and MI) offer somewhat attractive energy prices for IES.

• East South Central and Mountain regions, with some intense cooling loads and generally lowgas prices (although not the past two years), have the highest percenage of CHP withabsorption or EDCs of any region. New Mexico and Arizona offer particularly strong energyprices for IES. Relatively small heating loads (on a regional basis) in these areas contibute toa small CHP-only potential.

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Figure 3-6. IES “Spark Spreads”, by State

> $.06

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NEW ENGLAND

Source: Spark spreads calculated by subtracting the fuelcomponent of electricity generation (average natural gas pricefrom EIA’s Natural Gas Monthly times the heat rate of a naturalgas engine) from the average electricity price (from EIA’sElectric Power Monthly).

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Figure 3-7. IES Market Potential by Region

Sensitivity AnalysisA number of scenarios were constructed to evaluate how sensitive the base case is to varyinginputs. In doing so, there was a focus on how improving the cost and/or the efficiency of IESimpacts the market size. In addition, three sensitivities were added to illustrate the effects ofchanging energy prices on the IES market for buildings.

As shown in Table 3-4, a total of 6 scenarios were analyzed. The first three involved current(1999) energy prices, with either current (1999/2000) unit cost and performance or anticipatedfuture changes in unit cost and performance (2005+), and are documented in Tables A-1 and A-2.

Table 3-4. Scenarios Depicted by Sensitivity Analyses

Scenario CHP Unit Costand

Performance

Cooling Option Costand Performance

EnergyPrices

1. Base Case Current Current Current

2. Future Future Future Current

3. Future Package Future Future w/Package CostReduction Current

4. Moderate FAC Current Current Moderate Prices with FuelAdjustment Clause5. High FAC Current Current High Prices with FuelAdjustment Clause6. Peak FAC Current Current Peak Prices with FuelAdjustment Clause

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The second three scenarios involved changing energy prices. As shown in Figure 3-8, naturalgas prices increased dramatically in late 2000 and through 2001, which was not reflected in thebase case gas prices. As a result, industry experts forecasted a range of expectations, with somecalling for high prices to last a couple of years and others predicting long term impacts.

Figure 3-8. Natural Gas Price Increase (Through March 2001) and Industry Forecasts

Since it is generally accepted that there is convergence in gas and electric prices, translating theeffect of high natural gas prices on commercial building electric rates was important in analyzingthese scenarios. To accomplish this, a methodology was developed to estimate the increase infuel costs by state, and allocate that cost to the amount of electricity generation to derive anupdated electricity price. This method is similar to how utilities calculate their fuel adjustmentclause (FAC).

Two alternative gas price scenarios were developed: 1) moderate prices (Moderate FAC), whichcalls for wholesale natural gas prices to hover around $5/MMBTU for 2001-2002, and 2) highprices (High FAC), which calls for the $5/MMBTU wholesale prices to persist for the ten yearsup to 2010. Figure A-3 provides an example showing the Pacific Census Region, illustratingthese scenarios for industrial gas prices (as stated earlier, industrial prices are used toapproximate the rate that would be paid by a facility utilizing natural gas cooling or combinedheat and power, and are typically lower than small commercial rates but higher than pricesutilities pay). These scenarios were not adopted as expectations of future prices, but simply toexamine the impact on the IES market in buildings should either scenario emerge.

In addition, a final price scenario (Peak FAC) was added to see how the buildings market for IESwould be affected if the increase in gas prices was reflected solely as a demand-based charge.While this value would ultimately be likely embodied in only the limited number of peak pricinghours (e.g. the 200 highest-priced hours), it was difficult to do so for th